It is very interesting to use Fibonacci tool to analyze the movement of stock index. Dow, again, unable to hold on early gain to successfully making a foot mark at above 8100.
The longer head tail of the candlestick suggests that profit taking and more sellers at upper end. Dow has trying several times to break through this 61.8% level (8100). However, it was not successful.
Next week, It goings to get more exciting, as any significant breakthrough will be signal another round of rally. Let us sit down relax and watch how the market unfold next week.
Market has continuously defied the odd to hanging on, despite consecutive 2 weeks of over buy. This is what I called Sucker Rally! A very typical bear rally, which up more than 20% from the bottom we see at last month.
The traders are pumping up the price and supplying all the juices. Adrenalins are flowing, making the brain getting excited and ecstasy. Everyone is trying to jump into the market, as they fear that they may miss out the train.Let us use Fibonacci tool to make some analysis on Asia regional index to determine the market direction:
STI index has up more 25% for the past month. if we take 1950 as the peak and using Fibonacci Retracement analysis, STI is well supported at 1830 now. The last 2 candlestick pattern have showing consolidation has taking place.If STI drop below 1830, it will find support at 1760.May is the reporting month for many blue chips in STI. Any result which is not "WORST" than expected will send STI testing 1950 again!
Let us look at KLSE index. Absolutely amazing. The good news from M'sia government to abolish 30% Bumiputra Equity limit has helped lifting the market, despite we see Evening Star appear at Wednesday.It is more and more likely that KLSE going to test 1000 points now. However, 1000 points will prove to be a very strong resistance!
Which one should I follow? This is a common question that everyone asking. Fundamental supporter will say that value investing is the best. Technical analysis folk will say fundamental does not works at all!
To me, both set of theory and concept has pros and cons. It largely depend your investment time horizon, your risk appetite, your investment capital & lastly, you required rate of return.
What is value investing? The concept of value investing is to invest in a good business at correct price and hold it for long term, as long as the business fundamental is intact, regardless of market price movement. Warren Buffett once says that “In short term, stock market is like a voting machine; in long term, it is like a weighting machine”. The real meaning behind this is that the stock price in the end will reflect the business earning.
What is Technical Analysis? Technical analysis is a method of evaluating securities by analyzing the statistics generated by market activity, such as past prices and volume. Technical analysts do not attempt to measure a security's intrinsic value, but instead use charts and other tools to identify patterns that can suggest future activity.
I am a value investing supporter. However, due to my curiosity on technical analysis and trading, I had learned Japanese Candlestick & various technical indicators. In order to prove that all this technical theory can be work, I have tried it out on stock market and derivatives. The result that I get wasn’t great, partly due to my risk averse nature and also I am not yet master the tools yet.
The result is not really important to me, as I discover other things when I do some analysis over my trading result. There are few very interesting conclusions that I can make through my finding.
For instance, if you have $100 million capital on hand, you can’t really speculate with that kind of money at stock market. First of all, the buying price will work against you. It is very difficult to get low favorable price with huge buying volume without bidding up the price. Second, when you want to sell, the price will work against you again!
Technical analysis is a mimicking of investor psychology in the market. Japanese candlestick is best at explaining this. There are a few reasons why some of the so-called reverse signal work is because all of the traders learn the same things, use the same tools and come out with same conclusion!
The next best thing about trader is that they feed on news blatantly! This recent sucker rally is best at demonstrate how the trader push up the market. I can’t see anything difference between 1 month ago and now. The only thing I see is things going get ugly at 2nd half of the year. Whether it is a bottom, I am not sure as it is out of the topic.
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